RBS to pay investment bankers £1.5bn settlement

Royal Bank of Scotland, the lender at the centre of a storm over its chief
executive's bonus, is to pay out as much as £1.5bn to City bankers as it
counts the cost of its disastrous foray into investment banking.

Credit Suisse estimates the total cost of RBS's restructuring of its investment bank could come in at £3.4bn over the next three yearsPhoto: Getty Images

The payment will be split between £500m bonuses and about £1bn in redundancy costs as RBS boss Stephen Hester instigates a wide-reaching shake-up of the business.

The scale of money being disbursed will raise fresh questions over whether Mr Hester should have taken a £963,000 all-share bonus amid such turmoil in the bank's once most profitable business. Sir Philip Hampton, chairman of the bank 83pc-owned by the taxpayer, waived a £1.4m "golden hello".

John Hourican, head of global banking and markets, could receive a pay package worth more than £5m, despite overseeing the layoff of more than 3,000 staff, which is expected to cost RBS more than £200,000 per employee – sums likely to inflame public anger over bankers' pay.

Credit Suisse estimates the total cost of RBS's restructuring of its investment bank could come in at £3.4bn over the next three years.

Nomura said that while estimates "must be uncertain", it is forecasting that scaling down of the investment bank will result in a £1bn a year drop in its annual revenues.

This week, RBS is expected to announce the sale of its corporate broking business Hoare Govett – acquired with the disastrous acquisition of ABN Amro – to US investment bank Jefferies, as first revealed by The Telegraph. Jefferies is expected to take some staff from the bank's wider cash equities operations.

RBS is still hoping it might be able to find a buyer for the rest of its European cash equities business, although hopes are fading. Companies House documents show that profits at RBS Hoare Govett fell 70pc to £29.4m in 2010, the latest year for which figures are available.

Despite this, the pay of the business's highest paid director, likely to be either chairman Paul Nicholls or chief executive Patrick Broughton, increased year-on-year from £915,000 to £1.29m.

Along with cash equities and corporate broking, RBS is also trying to offload its equity underwriting and corporate finance businesses. Managers are racing to drum up interest in the operations as they will be closed unless a buyer can be found soon. Investment banking staff have already been warned to prepare for large-scale redundancies.

Mr Hester will give more details on the investment bank restructuring with RBS's full-year results announcement on February 23. With the anger surrounding pay levels at the bank, he will be under pressure to justify the continued payment of large bonuses to senior staff in the division despite the multi-billion pound reorganisation costs.

Still-to-be-finalised pay disclosure rules could force RBS to give the details of its eight highest paid non-board level managers. Last year, Mr Hourican was the bank's second highest paid manager with a total package worth £6.2m.

Labour politicians retaliated, seizing on an admission from Danny Alexander, Chief Secretary to the Treasury, that the Government could have blocked the bonus. Rachel Reeves, shadow Chief Secretary to the Treasury, described Mr Alexander's comment as "startling". Labour is attempting to force a Parliamentary vote on the issue.